Did Fannie Mae and Freddie Mac Cause the 2008 Mortgage Crisis?
No single enterprise is at fault for the 2008 mortgage crisis. Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) created in order to make mortgages more affordable for low- to middle-income homeowners. Fannie Mae and Freddie Mac purchase mortgages on the secondary mortgage market to provide lenders with funding to make further loans, and to a wider range of potential borrowers. While Fannie Mae primarily purchases mortgage loans from commercial banks, Freddie Mac primarily purchases loans from smaller banks.
Due to the nature of these entities, Fannie Mae and Freddie Mac propelled the market for subprime mortgages, which in turn helped contribute to the 2008 crisis. However, there were many other enterprises involved in mortgage-backed securities, as well as other factors that contributed to the crisis. In addition, other factors prompted Fannie and Freddie to continue providing subprime mortgage loans. For example, federal regulators granted both enterprises the ability to accept more subprime mortgage debt despite the issues of solvency and quarterly loss this approval was known to cause.
Overall, the continuous enabling of both enterprises to provide commitments to assist subprime mortgage holders further perpetuated the housing bubble, but was not the sole cause of the 2008 crisis.